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Fair Value Measurements | 9 Months Ended
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Sep. 30, 2022
Fair Value Disclosures [Abstract] |
Fair Value Measurements | Fair Value Measurements Topic 820 of the FASB ASC defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Topic 820 also establishes a three-level fair value hierarchy that prioritizes the inputs used to measure fair value. This hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows: •Level 1 – Quoted prices in active markets for identical assets or liabilities. •Level 2 – Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data. •Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs. There have been no significant changes to the valuation techniques and inputs used to develop the recurring fair value measurements from those disclosed in our 2021 Annual Report. The following tables present the fair value of assets and liabilities measured at fair value on a recurring basis as of September 30, 2022 and December 31, 2021 (dollars in thousands):
| As of September 30, 2022
| Fair Value Measured and Recorded Using |  |
| Level 1 |  | Level 2 |  | Level 3 |  | Total
Assets |  |  |  |  |  |  |
Available for sale debt securities: |  |  |  |  |  |  |
U.S. treasury securities | $ | 6,262 |  |  | $ | — |  |  | $ | — |  |  | $ | 6,262 |
Debt securities issued by U.S. federal agencies | — |  |  | 8,824 |  |  | — |  |  | 8,824 |
Corporate debt securities | — |  |  | 45,542 |  |  | — |  |  | 45,542 |
Asset-backed securities | — |  |  | 3,360 |  |  | — |  |  | 3,360 |
Collateralized mortgage obligations | — |  |  | 28 |  |  | — |  |  | 28 |
Total available for sale debt securities | 6,262 |  |  | 57,754 |  |  | — |  |  | 64,016 |
Equity securities | 34,669 |  |  | — |  |  | — |  |  | 34,669 |
Investments in unconsolidated subsidiaries | 270,342 |  |  | — |  |  | 503,935 |  |  | 774,277 |
Warehouse receivables | — |  |  | 1,190,964 |  |  | — |  |  | 1,190,964 |
Other assets | — |  |  | — |  |  | 1,867 |  |  | 1,867 |
Total assets at fair value | $ | 311,273 |  |  | $ | 1,248,718 |  |  | $ | 505,802 |  |  | $ | 2,065,793 |
There were no liabilities measured at fair value on a recurring basis as of September 30, 2022.
| As of December 31, 2021
| Fair Value Measured and Recorded Using |  |
| Level 1 |  | Level 2 |  | Level 3 |  | Total
Assets |  |  |  |  |  |  |
Available for sale debt securities: |  |  |  |  |  |  |
U.S. treasury securities | $ | 7,002 |  |  | $ | — |  |  | $ | — |  |  | $ | 7,002 |
Debt securities issued by U.S. federal agencies | — |  |  | 9,276 |  |  | — |  |  | 9,276 |
Corporate debt securities | — |  |  | 50,897 |  |  | — |  |  | 50,897 |
Asset-backed securities | — |  |  | 3,428 |  |  | — |  |  | 3,428 |
Collateralized mortgage obligations | — |  |  | 725 |  |  | — |  |  | 725 |
Total available for sale debt securities | 7,002 |  |  | 64,326 |  |  | — |  |  | 71,328 |
Equity securities | 69,880 |  |  | — |  |  | — |  |  | 69,880 |
Investments in unconsolidated subsidiaries | 229,900 |  |  | 23,741 |  |  | 406,690 |  |  | 660,331 |
Warehouse receivables | — |  |  | 1,303,717 |  |  | — |  |  | 1,303,717 |
Total assets at fair value | $ | 306,782 |  |  | $ | 1,391,784 |  |  | $ | 406,690 |  |  | $ | 2,105,256 |
Liabilities |  |  |  |  |  |  |
Other liabilities | — |  |  | — |  |  | $ | 10,700 |  |  | $ | 10,700 |
Total liabilities at fair value | $ | — |  |  | $ | — |  |  | $ | 10,700 |  |  | $ | 10,700 |
Fair value measurements for our available for sale debt securities are obtained from independent pricing services which utilize observable market data that may include quoted market prices, dealer quotes, market spreads, cash flows, the U.S. treasury yield curve, trading levels, market consensus prepayment speeds, credit information and the instrument’s terms and conditions. The equity securities are generally valued at the last reported sales price on the day of valuation or, if no sales occurred on the valuation date, at the mean of the bid and ask prices on such date. During the third quarter, the company made a $100.4 million capital investment in VTS, a leading proptech company, and the balance is included in “other assets” in the accompanying consolidated balance sheets. The tables above do not include this non-marketable equity investment accounted for under the measurement alternative, defined as cost minus impairment, if any, and adjusted for subsequent observable transactions for the same or similar investments of the same issuer. No adjustments or impairments were recorded during the three months ended September 30, 2022. The fair values of the warehouse receivables are primarily calculated based on already locked in purchase prices. At September 30, 2022 and December 31, 2021, all of the warehouse receivables included in the accompanying consolidated balance sheets were either under commitment to be purchased by Freddie Mac or had confirmed forward trade commitments for the issuance and purchase of Fannie Mae or Ginnie Mae mortgage backed securities that will be secured by the underlying loans (See Note 4). These assets are classified as Level 2 in the fair value hierarchy as a substantial majority of inputs are readily observable. As of September 30, 2022 and December 31, 2021, investments in unconsolidated subsidiaries at fair value using NAV were $96.3 million and $152.7 million, respectively. These investments fall under practical expedient rules that do not require them to be included in the fair value hierarchy and as a result have been excluded from the tables above. The tables below present a reconciliation for assets and liabilities measured at fair value on a recurring basis as of September 30, 2022 using significant unobservable inputs (Level 3) (dollars in thousands):
| Investment in Unconsolidated Subsidiaries |  | Other assets (liabilities)
Balance as of June 30, 2022 | $ | 441,626 |  |  | $ | 1,867 |
Transfer in | — |  |  | — |
Net change in fair value | 62,309 |  |  | — |
Purchases / Additions | — |  |  | — |
Balance as of September 30, 2022 | $ | 503,935 |  |  | $ | 1,867 |
Balance as of December 31, 2021 | $ | 406,690 |  |  | $ | (10,700) |
Transfer in | — |  |  | — |
Net change in fair value | (2,755) |  |  | — |
Purchases / Additions | 100,000 |  |  | 12,567 |
Balance as of September 30, 2022 | $ | 503,935 |  |  | $ | 1,867 |
Net change in fair value, included in the table above, is reported in Net income as follows:
Category of Assets/Liabilities using Unobservable Inputs |  | Consolidated Statements of Operations
Investments in unconsolidated subsidiaries |  | Equity income from unconsolidated subsidiaries
Other assets (liabilities) |  | Other income (loss)
The table below presents information about the significant unobservable inputs used for recurring fair value measurements for certain Level 3 instruments as of September 30, 2022:
| Valuation Technique |  | Unobservable Input |  | Range
Investment in unconsolidated subsidiaries | Discounted cash flow |  | Discount rate |  | 14.5% - 27.0%
| Monte Carlo |  | Volatility |  | 70.0 | %
|  |  | Risk free interest rate |  | 4.04 | %
Other assets (liabilities) | Discounted cash flow |  | Discount rate |  | 27.0 | %
We recorded $10.4 million during the first quarter of this year, in non-cash asset impairment charges (primarily comprised of receivables), on a pretax basis, related to the exit of our Advisory Services business in Russia. During the second quarter of this year, we recorded a non-cash goodwill impairment charge of $26.4 million in our Real Estate Investments segment for the Telford Homes business. The charge was attributable to the effects of elevated inflation on construction, materials and labor costs which increased Telford Homes’ risk as the contractor and reduced the profitability of current projects. The fair value measurements employed for our impairment evaluation was based on a discounted cash flow approach. Significant inputs used in the evaluation included a risk-free rate of return, estimated risk premium, terminal growth rates, working capital assumptions, income tax rates as well as other economic variables. There were no asset impairment charges or other significant non-recurring fair value measurements recorded during the three months ended September 30, 2022. There were no significant non-recurring fair value measurements recorded during the three and nine months ended September 30, 2021. FASB ASC Topic 825, “Financial Instruments” requires disclosure of fair value information about financial instruments, whether or not recognized in the accompanying consolidated balance sheets. Our financial instruments are as follows: •Cash and Cash Equivalents and Restricted Cash – These balances include cash and cash equivalents as well as restricted cash with maturities of less than three months. The carrying amount approximates fair value due to the short-term maturities of these instruments. •Receivables, less Allowance for Doubtful Accounts – Due to their short-term nature, fair value approximates carrying value. •Warehouse Receivables – These balances are carried at fair value. The primary source of value is either a contractual purchase commitment from Freddie Mac or a confirmed forward trade commitment for the issuance and purchase of a Fannie Mae or Ginnie Mae MBS (see Note 4). •Investments in Unconsolidated Subsidiaries – A portion of these investments are carried at fair value as discussed above. It includes our equity investment and related interests in both public and non-public entities. Our ownership of common shares in Altus Power Inc. (Altus) is considered level 1 and is measured at fair value using a quoted price in an active market. Private placement warrants related to Altus are considered level 2 and measured at fair value using observable inputs for similar assets in an active market. Our ownership of alignment shares of Altus and our investment in Industrious and certain other non-controlling equity investments are considered level 3 which are measured at fair value using a Monte Carlo and a discounted cash flow approach, respectively. The valuation of Altus’ common shares, private placement warrants and alignment shares are dependent on its stock price which could be volatile and subject to wide fluctuations in response to various market conditions. •Available for Sale Debt Securities – Primarily held by our wholly-owned captive insurance company, these investments are carried at their fair value. •Equity Securities – Primarily held by our wholly-owned captive insurance company, these investments are carried at their fair value. •Other assets / liabilities – Represents the net fair value of the commitment related to a revolving facility in our Advisory Services segment. Valuations are based on discounted cash flow techniques, for which the significant inputs are the amount and timing of expected future cash flows, market comparables and recovery assumptions. •Short-Term Borrowings – The majority of this balance represents outstanding amounts under our warehouse lines of credit of our wholly-owned subsidiary, CBRE Capital Markets, and our revolving credit facilities. Due to the short-term nature and variable interest rates of these instruments, fair value approximates carrying value (see Notes 4 and 9). •Senior Term Loans – Based upon information from third-party banks (which falls within Level 2 of the fair value hierarchy), the estimated fair value of our senior term loans was approximately $387.7 million and $451.8 million at September 30, 2022 and December 31, 2021, respectively. Their actual carrying value, net of unamortized debt issuance costs, totaled $391.7 million and $454.5 million at September 30, 2022 and December 31, 2021, respectively (see Note 9). •Senior Notes – Based on dealers’ quotes (which falls within Level 2 of the fair value hierarchy), the estimated fair value of our 4.875% senior notes was $589.8 million and $671.7 million at September 30, 2022 and December 31, 2021, respectively. The actual carrying value of our 4.875% senior notes, net of unamortized debt issuance costs and discount, totaled $596.2 million and $595.5 million at September 30, 2022 and December 31, 2021, respectively. The estimated fair value of our 2.500% senior notes was $381.2 million and $502.1 million at September 30, 2022 and December 31, 2021. The actual carrying value of our 2.500% senior notes, net of unamortized debt issuance costs and discount, totaled $489.0 million and $488.1 million at September 30, 2022 and December 31, 2021. •Notes Payable on Real Estate - As of September 30, 2022 and December 31, 2021, the carrying value of our notes payable on real estate, net of unamortized debt issuance costs, was $50.8 million and $48.2 million, respectively. These notes payable were not recourse to CBRE Group, Inc., except for being recourse to the single-purpose entities that held the real estate assets and were the primary obligors on the notes payable. These borrowings have either fixed interest rates or floating interest rates at spreads added to a market index. Although it is possible that certain portions of our notes payable on real estate may have fair values that differ from their carrying values, based on the terms of such loans as compared to current market conditions, or other factors specific to the borrower entity, we do not believe that the fair value of our notes payable is significantly different than their carrying value.

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- Definition The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -SubTopic 10 -Section 50 -Paragraph 2 -URI https://asc.fasb.org/extlink&oid=126976982&loc=d3e19207-110258 + Details
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